An investigation by the New South Wales Independent Liquor and Gaming Authority (ILGA) has confirmed that Australian gaming giant Crown Resorts disregarded warnings of money laundering activity in its Australian casinos, and may have done business with entities linked to organized crime through its dealings with high rollers and Asian junkets.
The inquiry, conducted by former Supreme Court judge Patricia Bergin, will determine Crown’s suitability to operate an AU$2.2 billion VIP casino resort in Sydney, due to open this December.
The inquiry was called following reports last year by the Sydney Morning Herald, The Age and 60 Minutes that Crown did business with junket operators linked to Asian triads—criminal gangs who allegedly used the Australian casinos to launder dirty money.
The probe, which began in January but was suspended for 90 days due to Covid-19, also looked at the probity of Melco Resorts & Entertainment, which had acquired a stake in Crown Resorts. The Hong Kong-listed company is run by Lawrence Ho, son of the late Stanley Ho, long alleged to have ties to Chinese organized crime.
Lawrence Ho has always maintained that his business is a wholly separate entity, unconnected to his father’s. But when informed he might be called to testify along with Crown honcho James Packer at the hearing, the billionaire quickly distanced himself from Crown. In April, Ho unloaded his 9.99 interest in the Australian company to American private equity firm Blackstone at a reported loss of nearly $330 million.
A Pattern of Bad Behavior
Crown’s recent troubles began to percolate in 2016, when 19 staffers working in mainland China were arrested for illegally promoting Crown casinos to Chinese VIPs. In testimony earlier this month, Jason O’Connor, former head of Crown Resorts’ international high-roller business, suggested that the single-minded pursuit of profit “may have blinkered” some Crown executives to the peril facing their employees overseas, especially in light of the arrests and detention of South Korean marketing staff in a similar case in 2015. The Crown staffers were imprisoned for 10 months in a Shanghai jail, then deported.
O’Connor conceded in his testimony that “some of these customers appear to have links” to criminal enterprises that Crown’s due diligence processes didn’t pick up. “There does appear to have been failures in our processes; that’s been laid pretty clear.”
The resulting public relations nightmare caused a steep decline in share values, which led to a shareholder lawsuit.
O’Connor is still with Crown, as part of the team planning to open the Sydney resort.
Crown compounded its PR problem when former executive chairman John Alexander proclaimed, in an August press conference, that Crown had received a “gold star” for compliance and anti-money laundering measures from independent expert Neil Jeans, of Melbourne-based AML compliance firm Initialism.
That assertion was refuted in testimony by Jeans on September 11, in which he told the panel that, while he reviewed Crown’s compliance policies as written and found them in keeping with governmental requirements, he did not measure their practical effectiveness, and issued no gold star. Jeans also said he advised that Crown’s “highly manual” transaction monitoring system be automated.
Alexander stepped down as executive chairman in January, but remains a director of the company, majority-owned by Packer.
Making matters worse, the probe found that Crown issued a false news release and advertisement last year, denying the news reports and claiming they contained “unsubstantiated allegations … and outright falsehoods.”
The company had claimed that junket operator Suncity Holding Group was listed and controlled by a regulated Hong Kong firm. Crown Chief Legal Officer Joshua Preston acknowledged to investigators that the company dealt directly with Suncity Chairman Alvin Chau Cheok Wa, who was barred from entering Australia last year because of purported links to organized crime and money laundering.
Among the most damning discoveries was that senior Crown executives reportedly authorized a lower-level staffer to send a $500,000 wire transfer to a Melbourne drug trafficker after being told that he was a “good friend” of one of the casino’s junket partners.
‘Ignoring Red Flags’
Ben Lee, Asian gaming expert and managing partner with consultancy iGamiX, said Crown’s actions are “unfathomable in this age of corporate governance and accountability.”
Lee told GGB News, “Crown took extraordinary pains to try and shield a portion of their executives’ testimonies as well as internal paperwork to protect themselves from the pending shareholders’ suit. What is also likely reading the testimonies is that some of the senior executives patently ignored all the red flags put up by their clients as well as field staff about potential actions pending by the Chinese authorities.
“They blithely ignored the arrests of the Korean marketing staff, they operated offices without permits, and worst of all, they actively promoted gambling in a country where promotion of gambling is a criminal offense.”
Despite “a very public warning by the Chinese authorities” that the promotion of gambling is forbidden in mainland China, key Crown executives “pushed on ahead with their aggressive marketing stance and did not highlight the heightened risks to their board.”
In a possible black mark for the regulators themselves, Crown “was allowed to self-investigate and approve their junkets,” Lee said. “There is no due diligence conducted by the authorities. I think one of the more obvious outcomes is that Crown failed that test.”
So, is Crown going down?
Not likely, said Lee, who believes NSW authorities will allow Crown to continue with the casino project, with “new levels of controls, such as government level approvals for junkets, rather than the self-approvals they are currently permitted.”
Brendan Bussmann, partner with gaming consultancy Global Market Advisors, told GGB News, “The current inquiry continues to raise questions about Crown’s suitability, not just looking at their activities in Australia, but also their past operations in China.
“Based on what we’ve heard, the regulators may have a difficult task of how best to move forward once they have all the facts. There are a lot of directions this could go.”
Among the most unpleasant? According to the Herald, NSW taxpayers could be compelled to pay millions to Crown to help it keep out criminals. Under its 2014 deal with former NSW Premier Mike Baird, Crown can claim compensation worth 10.5 times the estimated negative financial impact from “any action” the NSW government takes that negatively affects its license.
MP Justin Field said the deed’s implications are “outrageous” and could discourage the state from taking action that would help keep criminal elements out of gaming.
Meanwhile, a website for the new casino, located in Sydney’s Barangaroo district, continues to promote it as a “new dawn in effortless sophistication for Australia” and “a defining landmark of this beautiful city.”